AC Transit canceled plans Tuesday to make deep cuts in weekend and overnight service in December after an arbitration panel settled a contract dispute with the labor union representing its 1,750 drivers and mechanics.

The panel's binding ruling calls for a three-year contract requiring members of Amalgamated Transit Workers Union Local 192 to make contributions to their health and pension plans, changes some work rules and holidays. The district says it should save about $13 million a year.

AC Transit had sought $15.7 million in annual savings from the union before negotiations broke down this summer. The district imposed working conditions but the union won court rulings overturning them and ordering arbitration to settle the contract dispute.

The financially struggling transit district slashed services in March and also at the beginning of this month, cutting a total of 15 percent. It had planned to cut weekend service on all but its main lines and to eliminate four of its six all-night routes in December.

Clarence Johnson, an AC Transit spokesman, said those cuts have been halted but that the agency is still facing a financial crisis and may have to reduce service next year.

"We still have a deficit," he said, "but this puts us in a better position to manage our finances."